LiquidAssets10

Which of the following statements about securities exchanges is NOT correct?

A) In call markets, there is only one negotiated price set to clear the market for a given stock.

B) Securities exchanges may be structured as call markets or continuous markets.

C) In continuous markets, prices are set only by the auction process.

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In continuous markets, the price is set by either the auction process or by dealer bid-ask quotes.

LiquidAssets10

Which of the following statements about securities exchanges is most accurate?

A) Call markets are markets in which the stock is only traded at specific times.

B) Continuous markets are markets where trades occur 24 hours per day.

C) Setting a negotiated price to clear the market is a method used to set the closing price in major continuous markets.

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Continuous markets are markets where trades occur at any time the market is open (i.e. they do not need to be open 24 hours per day). Setting one negotiated price is a method used in major continuous markets to set the opening price.

LiquidAssets10

A unique item such as fine art is most likely to be exchanged in a(n):

A) quote-driven market.

B) brokered market.

C) order-driven market.

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Brokered markets are typically the best market structure for unique items. A broker adds value by locating a counterparty to take the opposite side of a trade of such an item.

LiquidAssets10

Which of the following is least likely a characteristic of a well-functioning market?

A) Reliable information is available on price and volume.

B) Prices adjust quickly when new information becomes available.

C) Prices change significantly from one transaction to the next.

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In a well-functioning market, prices should not typically change much from one transaction to the next because many buyers and sellers are willing to trade at prices near the current price. Characteristics of a well-functioning market include availability of reliable information on prices and transaction volume; liquidity (marketability and price continuity); prices that react quickly to new information; and low transactions costs.

LiquidAssets10

An objective of financial market regulation is to:

A) reduce information gathering costs by requiring common financial reporting standards.

B) ensure that inside information is made public in a timely manner.

C) prevent uninformed investors from participating in financial markets.

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One of the objectives of market regulation is to require firms to report their financial performance according to a single set of standards, such as those of the IASB or FASB, thereby reducing market participants’ cost of gathering information. Market regulation is not designed to prevent uninformed investors from trading, but to protect unsophisticated investors and thereby preserve trust in the financial markets. An objective of market regulation is to prevent those with non-public information from profiting at the expense of other investors, but not necessarily to make all inside information public.